Small Business Loan in India: Uses, Eligibility & Benefits of Business Loan

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What is Small Business Loan

When the business starting plan is in its initial stages, you begin to thinking of various ways to improve it and how to take to other cities and countries. Every wise businessman is always ready with strategies to work it out. He makes lots of effort to do so but in reality, it is difficult. So, how he/ she will expand a small business? Small Business Loan can be a good choice as there are several choices for you to select from. These loans are given after the approval of the U.S. Small Business Administration. This organization not only provides a guarantee to the lenders but also helps small businesses to grow and expand.

Small Business Loan is a way to take your business ahead. There are several banks that offer term loans, equipment financing, business line of credit and merchant cash advances. These business loans intend to help the entrepreneurs and businesses to meet their requirements of capital. By these loans, you can take your Small Business Financing to the next level. Before going ahead with a small business loan in India, the following are the eligibility criteria.

Uses of a Small Business Loan in India

Congratulation! Your small business loan is approved. Now, what next? Well at this stage, you must analyze all the aspects of the finances which will boost your business. You must be aware that finance is the backbone of any business and wisely use of the same will result in the success of the business.

  1. Plan for the Repayment

    It’s time to build your business credit and for the same, you will have to schedule the repayment. For the repayment, you must plan your budget. Make sure to set the automatic payment mode in the business account, so that the repayment amount can be deducted on the time. This will help you to maintain a good credit score. During the loan process, you may have seen the role of the credit score and now you have got the opportunity to build the same. If failed, then it may hamper your credit score as well as a business credit history. This will become the major hurdle in the forthcoming business loan. So, it is advised to make the repayment to the lender on time to get a good credit score. It will help you to get a business loan in the future in an effective manner.

  2. Inventory Plan

    Inventory is the pioneer of any business and the proper plan of the same is a must. You should analyze what are the essential equipment that is needed for the smooth running of the small business and should avoid filling the warehouse with unwanted stuff. This plan will help you to regulate the cash flow of the small business loan in an efficient manner.  A fresh inventory model with proper plan and execution will broaden your business range and will reach the mass in a quick span of time which will result in the rise of the business and will show the wise use of the business loan.

  3. Sales and Marketing

    Marketing is an important pillar of any business and if you want to reach high in the business, then you must focus on marketing. Earlier, conventional marketing was in demand which cost more and offers less output. After the digitalization, all the goods and services are easily available under one roof and the operating cost is also minimal. So, you must advertise your business to get the maximum Return on Investment with minimum use of small business loans. This will reduce your cost and you will get a better output.
    Sales and Marketing are the wings of the business and if talked about sales; the more the sale more you will get the profit. But it is the output of the marketing and the sale of the products or services depends upon the marketing strategies. So, make use of the business loan in an effective way so that you may get good leads from the marketing and convert the same into the sales with maximum profit.

  4. Hiring New Employees

    To start a new business, you will need a good team that will play an active role in your business. But the hiring and training process would cost you more. So, here you will have to focus more because you will have to wisely use the business loan to train the new staff and get good output from them. But make sure not to spend too much money on hiring and training the staff. If possible, avoid giving too much time in the process as time and money are directly proportional to money. More the time you will give in the process more the money will be drained out from your business account.

  5. Make Your Business Standardised

    The sudden influx of cash flow via small business loan will make your mind blank. At this stage, you won’t be able to decide exactly where to optimize the money. At first, you just need to focus on your goals and the aim of the business. In the present day, there is enough competition in the market and you need to stand parallel in all aspects and one of such is technology. In the field of technology, you will have to get the best software for your business. This will give you the best output in a quick span of time and amid selecting the same you must select such software which is high in demand and must be cost-effective.

  6. Refinancing Debt

    After getting the small business loan you must focus on the repayment so as to build up a good credit score. If you have maintained a good track record with the lenders, then you might be able to refinance the debt at a lower interest rate.

  7. Expand your Business:

    What if your business reaches the goal with only half of the approved small business loan? Well at this stage you will get excited and will wonder what to do next. But you need to focus to invest the money in the right place so that you can get profit and can repay the loan amount easily. If the case is reversed and your business gets down then at this stage you need to be calm. You will have to look for the business, credit score, small business loan credit, repayment and much more. So, think wisely and invest the small business loan in an appropriate place where you can get enough profit. This way you can manage the debt in an effective manner.

Benefits of Small Business Loan

Although there are many other loans that you can choose from if you want to expand your existing business then applying for these recommended loans from Orumfy are the best for you. You can gain the following benefits from them.

  • Minimum Rate of Interest

    The owners of small businesses don’t earn that much as other big ones do, so whatever type of loan is applied to the rate of interest is lower than others. It saves the businessman money as he has to pay less.

  • Long Terms of Payback:

    The period of repayment is the longest of all. The tie of repaying is different is various Small Business loans but a standard of 5-25 years is the time to pay back the whole amount including the interest. This is because small businesses don’t earn much profit so long time is given to them.

  • Flexible Down Payments

    The borrowers can choose the amount he/ she wants to pay as a down payment. An advantage is that the amount that you will repay will be decreased as you have paid an amount to the lender. But there are certain Small Business loans that don’t require any down payment.

  • Adjustable Terms and Conditions

    The terms and conditions of Small Business loans are different from all its kinds and each of them can be adjusted to the demands of either the lender or the borrower. But no one is allowed to misuse this authority in any way.

Business that can easily get Small Business Loan in India

The people might be convinced that you can only progress if you are having a very large business but it is not the case as there are many examples where small companies have advanced and moved forward and showed that they are nothing less than others. The following businesses can easily be expanded through a Small Business Loan:

  • Personal Trainer
  • Dog Specialist
  • HandCraft Shop
  • Online Consultants
  • Various Cleaning Home Services
  • Tourist Guides

Things To consider before applying for Business Loan

The most common alternative available nowadays for funding are the banks or Non-Banking Financial Companies (NBFC’s) that offer a variety of small business loans. As the nation’s current situation is witnessing the rise of many start-ups and companies, there are many ways through which an entrepreneur can receive funding for their business.

But, given the amount of paperwork and eligibility requirements, getting a small business loan might seem like a complicated process. The vital key to getting a business loan successfully lies in how you negotiate the terms and rates with the lender.

However, before you go for a small business loan, you need to consider certain things for the quick approval of the loan:

  1. Present a Good Business Plan

    A strong business plan helps in bringing out your requirements for the loan. Apart from this, it provides an introduction to your business entity, introduces you to the financial institution or bank, and states the missions, vision, and goals of the business. Your business plan has to showcase your knowledge and skill level of operating a business.
    Include every detail of your business, including your goals, competitors, revenue, and expense projections- past and future, market analysis, and your plan of action. You need to convince the lender that you are the best candidate for the business loan. Ensure that you attach an executive summary that will convey your vision to the lender.

  2. Prepare your Financial Statements

    As detailed above, it is a must to include your financial statements for the investors to assess your business’s feasibility. Include all your cash flow statements, income statements, balance statements for the past three to five years. You should also take into account all the seasonal changes in your business when computing the reports. Present a doable plan of action along with the projected numbers, so that the lenders can understand your vision. It also gives them the confidence that you will be able to churn out enough profits to cover your loan.

  3. State the Purpose of the Loan

    Be it a bank or NBFC; lenders will want to know the exact details of how you will utilize the funds of the business loan. This knowledge will help them assess the viability of your small business loan application. So, it is a prudent practice to create a detailed loan proposal. The loan proposal should include the details of:

    • How much funds do you require?
    • How will you channel the funds in the development of your business?
    • What is your repayment plan of action?
    • What is your safety net if your business does not give enough returns to repay the loan?

    For example, if you want to purchase a piece of equipment for your business, then it is best to apply for equipment financing. You can go a mile further by researching the price variations of the same machine in the market. Include that research as well to show the lender how serious you are about developing your business.

    If you are looking to fund your business or bridge your working capital gap, then a business loan is a better alternative. So, by clearing stating for what you need the funds for, will help the bankers decide whether the applied loan amount will fulfill your needs.

  4. Don’t Falter When Quoting a Number

    When applying for a business loan, citing the right number is of prime importance. You need to undertake thorough research so that you do not overestimate or underestimate the amount. Overestimating and underestimating the amount can cause severe implications for your business.  Overvaluing the amount required can project you as an inexperienced person while underestimating will lead to financial crunch. Hence, to avoid these road bumps, make sure you present proper financial projections backed up by sound research.

  5. Pay Attention to Credit Score

    If your business is new and hasn’t had the time to build up a credit history, then you will need to have a look at your credit score. Lenders will want to ascertain that they are lending money to an individual who has a proven track record of being financially responsible. They will fall back on your credit score to do so as it shows your creditworthiness. In case there is a slight hinge in your credit score, wait till it improves and then apply for the business loan.

    On the other hand, if you notice some discrepancies or errors in the credit report, get them corrected immediately. If you fail to address these errors, that could result in the rejection of your business loan by the authorities.

  6. See Whether You Need Collateral

    Some kind of small business loans might require some collateral, then make sure that you know you the exact value of your property or asset that you are offering as collateral. Lenders will want to know the precise worth of the guarantee along with associated costs. Ensure that you don’t default on the loan that could cause you to lose the collateral.

  7. Be Prepared for Higher Expectations

    The qualifying criteria now lenders prescribe are quite stringent. They want to lend money but are still very cautious about who they are backing. They will often ask for additional paperwork or collateral as precautionary measures. If you don’t have collateral, you need to prove yourself as a worthy candidate on paper.

  8. Talk with Your Financial Adviser

    If you are applying for a business loan for the first time, it might be challenging to assess how much exactly you need. Usually, new businesses need an uninterrupted flow of funds to establish and run their operations smoothly. It is wise to have a detailed discussion with your accountant to chalk out the exact needs of the business. They can also help you with drawing out the projections and advise you on the best course of action.

  9. Prepare a List of the Lenders and Financial Institutions

    After checking every option, you have to compile a list of the banks and the financial institutions. Now calculate the interest rates along with the other features of the loan before applying. Try to choose the bank or institution that offers the lowest rates of interest and flexible terms and conditions for loan approval.

  10. Be Ready with all Documents

    While all your projections and documents can provide evidentiary support to your loan requirements, you must impress the lenders with your knowledge. Be well-equipped to answer any and all questions they might have. Before filling out the paperwork, it is vital that you have all the information. Obtaining a business loan gets a lot easier if you have all the documentation in order. The most common ones include your ID and address proofs, balance sheets, TIN number, PAN number, income statements, and so on. They will prove your credibility and creditworthiness.

  11. Assess Your Lenders

    Not all lenders and banks offer the same kind of business loan. Before going for a small business loan, make sure you assess all the lenders before zeroing on one of them. They should be well-equipped to serve your vertical’s business, industry, and financial needs. You can visit their official websites to know about them, and as well as other review sites or lending sites to understand their stats.

    For instance, the below-given questions will help you gauge the lender’s ability to support your business:

    • What is the average loan amount awarded?
    • What is the standing of the lender in the market, specifically in your industry?
    • How long does it take to get the applications accepted?
    • What is the time duration for the whole loan process?
    • What is the repayment schedule and tenure?
    • Are there any flexible terms of repayment?
    • Do they often ask for a personal guarantee?
    • If it is an NBFC, how do they handle the process?
    • What is their track record? And so on
  12. Understand the Impact of the Business Loan

    While the above point assesses the lender’s credibility, you should also pay attention to the fact as to how the loan will affect your financial well-being in the long run. You need to know how long it will precisely take for you to pay off the loan. Compare that timeline by using different interest rates and tenure offered by different lenders in the market.

    You also need to estimate your monthly payments and see if your monthly budget still functions without a deficit. You need to add the amount you will pay as Equated Monthly installments (EMI’s) in the financial statements you submit to the lender. Along with this estimate, you can add all your monthly expenses and see how it will cost you and what measures you need to take for handling that expense.

    At the same time, it is essential that you know all the terms and conditions set forth by the lender and choose accordingly.

    By considering these points, you can quickly obtain a small business loan. Moreover, with advances in technology, getting a business loan has now become a straightforward process. Get your personal credit score in check, organize your financial statements, and be prepared to answer and ask questions when meeting with your potential lender.

Eligibility Criteria for Small Business Loan in India

  • A corporate loan can be availed by self-employed non-professionals, self-employed professionals, and entities.
  • While the self-employed non-professionals include traders and manufacturers, chartered accountants, doctors, architects, and company secretaries. Although the loans are offered to those applicants only who can provide proof of qualification and are currently in practice.
  • The business entities for which the corporate loan are given include limited liability partnerships, the private limited companies, partnerships, and the closely held limited companies.
  • The minimum turnover of the business must be 40 lakhs to opt for a business loan in India.
  • While businesses need to have a total and minimum experience of five years, they must also have minimum experience of three years in the current business.
  • The income tax return of five lakhs per annum is mandatory and the business must be able to show that it has been making a profit for the last two years.
  • The applicants for a small business loan in India must be around 25 and 55 years of age.
  • The business applying for the loan must have filed the IT returns for the last year.
  • The lenders may restrict the offering of a small business loan to certain towns and cities.

Documents Required for Business Loan in India

When you apply for a small business loan in India, you have to furnish the following documents.

  • PAN card in the name of an individual, firm, or company.
  • ID proof in the form of Passport, Aadhar card, driving license, and Voter’s ID card.
  • You have to provide the latest income tax return along with the calculation of income, balance sheet, and P&L accounts for the last two years. All the financials you provide must be certified by a qualified Chartered Accountant.
  • You have to provide a copy of the bank statement for the last six months.
  • Proof of business continuity is to be furnished through Trade License, Sales Tax Certificate, and ITR. The GST registration is mandatory for filing the ITR.
  • The sole proprietorship declaration is to be provided or a copy of the partnership deed.
  • You have to provide a certified and true copy of Memorandum and Articles of Association.

Even though the Goods and Services Tax may make your corporate loan expensive, the GST return filing process can simplify the regime of indirect tax.

Steps to Apply for a Small Business Loan

The following are the steps to follow to avail of the loan.

  • You can apply for small business loans in India through offline or online channels. Several lenders today allow the borrowers to apply for the loan directly through the official website. To apply for the loan, you have to visit the website of the lender and apply for the loan you need.
  • Once you apply, you will redirect to a web page containing the loan application form. You have to enter your name or the name of the business entity along with the contact number, details of the business and the city in which you conduct the business.
  • After filling in the required information, you have to submit the form.
  • You can also visit the nearest branch of the bank through which you want to apply for the loan. Wherein you have to submit the application form physically along with the required documents.
  • Once your documents are properly verified by the lender and the loan is approved, the amount comes to your account directly.

Using Business Loan EMI Calculator

Using the business EMI calculators is the easiest way to calculate the installments of small business loans in India. You need to enter information such as loan amount, rate of interest, and the tenure of the loan. The calculator will provide you with the amount you need to pay each month.

There may be several reasons you need to apply for a small business loan. Make sure you research all the possible options to maximize the benefits of the business loan in India.

Bottom Line
Hence, these were the key features that will help you to utilize the small business loan in India in an efficient manner.  So, go through the same carefully and amid running the business don’t spend the money on the unwanted stuff which may result in the deep loss of the revenue.

Also Read:  Personal Loan Mistakes you Should Avoid

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